RESTRUCTURING THE NATIONAL CARRIER

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Malaysian Airline System Berhad (MAS) will be “off the radar” very soon, in the wake of recent announcements of plans to take it private so as to enable a complete overhaul of the national airline.

Khazanal Nasional Bhd, which owns 69.37% of MAS said on Aug 8 that it would fork out RM1.4 billion to buy all the shares it does not own at 27 sen a share. This will be followed by a selective capital reduction and repayment exercise. Upon, completion of the exercise, MAS will be delisted and Khazanah will be its sole shareholder.

While MAS investors ponder whether they should accept the offer, or if it is a fair price, what many Malaysian would want to see is for the restructuring efforts to bear fruit this time around. 

The airline has gone through such exercises before, but it remains mired in problems.

Apart from the fact that Malaysia Airlines is our national carrier and many of us experienced our first flight on one of its planes, post-privatization, Khazanah must do what it takes to turn the airline around because taxpayer money is involed.

So, what needs to be done? Details of the restructuring exercise will be announced in September. RHB research analyst Jerry Lee expects cost-cutting initiatives to be carried out by MAS once it is taken private.

“We are still awaiting details of the restructuring plan, but initiatives like cutting unprofitable routes, trimming its workforce, and perhaps a renegotiation of unfavourable contracts will be carried out,” he says. Maybank IB Research aviation analyst Mohshin Aziz says MAS is expected to “take a closer look” at all its business. “It has to decide which business units are ‘hopeless’ and it needs to terminate soon.” For those proftitable businesses, Mas should put more emphasis on them. These would include Firefly, Mas Engineering, Mas Airport Terminal Services, Brahim Holdings Bhd and KL Aviation Fuel Services, in which it has non-controlling stakes.

The loss-making units are parent company MAS and its cargo unit MASkargo. While some analysts think privatization will enable management to implement changes faster and more efficiently, outspoken former prime minister Tun Dr Mahathir Mohamad does not think Khazanah can turn the ailing airline around. He says on his blog, Chedet, that there will not be much difference after privatization, as Khazanah’s control over MAS has been “almost absolute” all this while, but the airline has continued to “bleed profusely”.

Some industry observers say it is important that privatization is not used as a smokescreen to sweep the airline’s problems under the carpet. Instead, painful steps, even if they cause a political backlash, must be carried out to clean up the airline and stop the bleeding. This is so that it can be put on a sustainable path and start being profitable. Hopefully, this restructuring exercise will succeed where the previous ones have failed.

Source from Personal Money Magazine, September 2014 Edition